Thailand native Supap Kirtsaeng, a mathematics student at the University of Southern California, noticed that some of the college textbooks he used and sampled from his local college bookstore were selling at a lower price in Thailand than here in the United States. To him, it was the ideal arbitrage opportunity and allowed him to buy the books in Thailand and sell them in the U.S. It worked so well that it earned him around $1 million. The underlying publishers were Wiley and some other rivals, and the size of his revenue caught their attention.
Unfortunately for the enterprising student, Wiley sued him for copyright infringement and won the case. A judge in Manhattan on the Second U.S. Circuit Court of Appeals ordered Kirtsaeng to pay the company $600,000. The case is still being fought and has moved up the judicial ladder, with the U.S. Supreme Court to decide on the case soon. A 1998 Supreme Court decision has already made it possible for the original copyright owner to profit from the original sale of merchandise. This is now known as the first-sale doctrine and generally applies to U.S.-made products.

First-Sale Doctrine
The unfavorable ruling against Kirtsaeng represents a twist on the first-sale doctrine and was made with the conclusion that the doctrine doesn't apply to goods made overseas. Basically, anything produced outside of the U.S. doesn't fit the doctrine's original purposes. This has huge ramifications for the secondary marketplace.

If the Supreme Court rules against Kirtsaeng and in favor of Wiley, consumers who sell goods on eBay or any secondary marketplace could face copyright infringement charges for any products made overseas. This will lead to huge uncertainty. It is not always certain where goods are made, and products these days contain parts from around the world. It brings up many questions, such as if the final place of assembly counts as the country of origin, or if a certain percent of the raw materials are made overseas, for instance.

Firms including eBay, Costco and secondhand stores are clearly supporting Kirtsaeng and hope the first-sale doctrine is applied to all goods internationally. Other copyrighters that are subject to frequent piracy, including firms that own media rights to recorded music, film and related entertainment, would like to see more stringent restrictions on the sale of their goods in the secondary market. As such, they would like to see Wiley prevail.

Secondhand Marketplaces Paying Attention
If Wiley does win, consumers would have to get approval from the original manufacturer to sell a good online, to a secondhand store or another consumer. If manufacturers don't grant approval, it could grind these marketplaces to a halt. Manufacturers could also choose to be difficult and make the approval overly difficult or slow, which would also adversely impact the market.

On the flip side, going after their own customers could prove challenging. For starters, it would be extremely bad for business. It would also be cumbersome and nearly impossible to track down all potentially illicit activities. Legal fees could pile up, especially since copyrighting a product isn't that difficult, and it is doubtful whether pursuing legal action would be economical in many cases. Going after someone who sold a $10 DVD is hardly worth pursuing. The recorded music industry tried to go after consumers when illegal downloads of music took off on the Internet, but the strategy turned off customers and did little to dent illegal downloading activity.

The Bottom Line
A Supreme Court ruling in favor of Wiley would greatly complicate the buying and selling of used goods on the secondary market. No one is putting odds on which decision will be reached, but it seems logical that the first-sale doctrine should apply to both domestic and foreign items.

Photo Courtesy of cytech

Related Articles
  1. Investing Basics

    What are the fiduciary responsibilities of board members?

    Find out what fiduciary duties a board of directors owes to the company and its shareholders, including the duties of care, good faith and loyalty.
  2. Investing News

    What Affirmative Action Means for Businesses

    A look at what Affirmative Action means for your business.
  3. Investing

    Protect Your Creations--Register Your Trademark

    Federally registering your brand name or logo offers the broadest protection against potential trademark infringement.
  4. Entrepreneurship

    Hiring? Regulations Small Businesses Need to Know

    When a small business becomes an employer, it has new responsibilities. Make sure you familiarize yourself with regulatory requirements.
  5. Economics

    China's Former One-Child Policy Explained

    A look at China's former plan to control population growth.
  6. Mutual Funds & ETFs

    What This Market Timing Ruling Means for Investors

    What the Janus Supreme Court ruling on market timing means for investors and advisors.
  7. Economics

    The 5 Countries That Produce the Most Carbon Dioxide (CO2)

    Learn about the top five countries, China, the United States, India, Russia and Japan, that are the largest contributors to carbon dioxide emissions.
  8. Economics

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
  9. Investing Basics

    What Is Schedule 13G Used For?

    Schedule 13G is an SEC form an investor must file upon taking ownership of 5% or more of a company’s outstanding shares.
  10. Insurance

    Airbnb Insurance: Will It Cover Enough?

    If a paying guest trips over a rug in your home, breaks an ankle and sues for damages, here's how to make sure your coverage protects you.
  1. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  2. Can the IRS audit you after a refund?

    The U.S. Internal Revenue Service (IRS) can audit tax returns even after it has issued a tax refund to a taxpayer. According ... Read Full Answer >>
  3. How does escheatment impact a company?

    In recent years, state governments have become increasingly aggressive in enforcing escheatment laws. As a result, many businesses ... Read Full Answer >>
  4. What happens if property is wrongfully escheated?

    If your financial accounts, such as bank, investment or savings accounts, are declared dormant and the managing financial ... Read Full Answer >>
  5. How do financial advisors help you avoid escheatment?

    Financial advisors can help you avoid the escheatment of your financial assets by regularly reviewing all of your accounts, ... Read Full Answer >>
  6. Are 401(k) accounts escheatable?

    Typically, 401(k) plans are not subject to state escheatment laws because they are covered under the Employee Retirement ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center